At that time commissions were still purchased; upon honourable retirement, the officer would get the money back. (This is why 'cashiered', being dismissed dishonourably, shares a root with 'cash' - a dishonourably dismissed officer would lose the money he'd paid for his rank.) So a "free" colonelcy is in effect a promise of a big lump sum from the government upon retirement; not to mention that, if the officer in question is at all strapped for cash, it may be the only way he'll make colonel at all.

Being knighted and made a general is all very nice, but doesn't pay the bills. The colonelcy is, in effect, a pension arrangement - when he retires, he'll take his lump sum, invest it, and live off the dividends.

In addition to /u/King_of_Men's excellent post, I should point out that some regiments were more prestigious, and commissions in them more desirable. In the infantry during the late 18th and early 19th centuries, commands in the 33rd Regiment of Foot were a fast track to promotion, as the regiment performed well and its officers were well-connected. During the American War of Independence, General Cornwallis held the coloncey of the regiment (actual command was exercised by a lieutenant colonel or a major). A decade after the end of the American War, the future Duke of Wellington purchased a major's commission in regiment. That's a pretty rich pedigree, and I'm sure competition must have been fierce once Wellington sold his commission.

Commission in a cavalry regiment would have been somewhat more prestigious than most infantry commissions. The cavalry was generally considered a more exciting command than infantry, as the drama of a cavalry charge (exceedingly rare though they were in America) had an obvious romance to it. Dragoons were mainly used as scouts and light infantry, operating in advance of the army or on its flanks. These assignments offered a greatly increased chance of seeing combat and thus distinguishing oneself. Excellence in fighting the Americans in irregular warfare could, if nothing else, give a person ample ground and authority to write a book after the war, providing a nice supplement to a retired officer's half-pay. This is what Andreas Emmerich, commander of a dragoon unit composed of American loyalists, did after the war. You can find his book here.

Mark Urban in his book "Fusiliers" describes the "colonelcy" when General Howe was made a "Colonel of the Regiment". It made him responsible for equipping that body with uniforms and accoutrements using money from the government. Making deals with certain suppliers could net a handsome return which he could then pocket as one of his "perks".

In the early modern period many countries had a "colonel proprietor" system, which was a sort of holdover from the era when nobles raised forces to serve in the king's wars, or else companies of mercenaries were hired on to serve a particular country, and simply stayed on so long that they became an established part of the standing army. As others have posted here, by the late 18th century it was basically a prestige post. Dragoons (the heavy regiments) were expensive to equip and maintain: so "owning" such a regiment as a Colonel could be lucrative. As late as WWI, several major European monarchs were colonels of other nations' regiments-- this was a sort of honorary post but a reflection of the earlier role of the colonel proprietors in Royal armies.